World Renewable Energy Subsidies projected to grow from $110B in 2013 to $230B in 2030. Its interesting how the same information can be seen with very different perspectives. This article takes a positive spin, but growing from $110B to $230B in 15 years only represents a 5% annual growth rate. It is also very rare for articles to use the word subsidy. The word that is usually used is Policy. From the graph below, 2013 clean energy investment was $254B, of which PV accounted for about $110B. Subsidies were 110/254 or 43%. At 43% coverage, $230B of subsidies in 2030 will cover about $535B of clean energy investment. This 43% seems reasonable, as reducing costs for wind and solar generation will be offset by growing subsidies for energy storage and offshore wind costs. Numbers are numbing. These numbers seem large, but will only build a small amount of clean energy supply relative to what is needed to replace fossil fuels.

The graph shows that clean energy investment has been in decline. The declines in 2012 and 2013 were due to diminishing subsidies. Reduction of one time American stimulus funds and the reduced FIT subsidies in Europe. China, and Japan have dramatically increased subsidies recently which seems to have stopped the decline. 2014 is predicted to about match 2013 at about $250B.

Given the general stabilization in investment since 2009 and the strong dependence on the amount of subsidy, to predict high growth means predicting higher levels of subsidy. US subsidies will almost certainly decline in 2016. Europe's recession, Japan's recession, and China's slowdown don’t bode well for increased subsidies. The projected 5% annual growth in subsidy and by inference in clean energy investment seems realistic when taken in perspective.

This report titled “Beyond Boom and Bust” , was published in April 2012 and I commented on it in this blog post. It was the work of several bodies and individuals, including the Brookings Institute. It argued that US clean energy policy was producing boom and bust cycles, but making no progress in reducing atmospheric CO2. They advocated a more results driven “technology led” policy. The recent EPIA report on PV market outlook for 2014 to 2018 had an interesting section that described the recent behavior of the PV market in Europe as a series of unsynchronized national boom and busts that were hidden by looking at the overall European market statistics. To quote from page 31:

PV seems to have always and everywhere followed a path of governments introducing subsidies, investors responding enthusiastically producing a rapid growth boom. Governments then belatedly see the costs mount and reduce subsidies, causing a market bust. Then investor confidence is broken and difficult to restore. Europe has few countries that have not gone through this cycle. Europe has gone from being the biggest PV market to number three or four, with little sign of a likely recovery. The recent US rapid PV growth is driven by US subsidies enabling profitable investment in PV. The expiration of the Investment Tax Credit in 2016 will burst this bubble, just like all the rest. The governments in Japan and China are early in the subsidy cycle so the boom phase is only building up. In a year or two the costs will be un-sustainable and the bust will inevitably follow. All of this makes it virtually impossible for PV to reduce in cost. Low and unpredictable PV market growth will not encourage investment in newer plant and equipment that can reduce costs. At current cost levels PV market cannot grow without more subsidies. As the boom and bust cycles clearly illustrate, more subsidy is unlikely to be forthcoming. As the “Beyond Boom and Bust” report argued, current US clean energy subsidy policies are not succeeding. They only considered the US, but as we can see, the problem is worldwide. Perhaps it is time to consider the “technology led” policy reforms they advocated. By Edmund Kelly

If we focus on new electricity generation capacity worldwide a pattern emerges that somewhat explains the lack of progress on reducing CO2 emissions. New electricity generation investment is about $400B/y, $200B/y in wind and solar and $200B/y in coal, gas, nuclear and hydro. Another $300B/y is invested worldwide in electricity transmission and distribution. Looking at how the investment is apportioned between countries, a convenient division is between OECD and non OECD. This is a pretty accurate division between developed nations and developing nations. Developed nations have a relatively low growth in overall electricity capacity, with most new generation replacing old generation. Developing nations are growing their overall electricity generation capacity at a rapid rate to balance their rapid GDP growth. Interestingly, from a dollar perspective OECD and non OECD spend about the same on wind and solar, about $100B/y. Developing nations spend most of the $200B/y that is spent on coal, gas, nuclear and hydro, over 66%. They also spend most of the investment for transmission and distribution, about 66% or $200B/y. Because of the rapid pace and large scale of development, developing countries follow a well proven path of investing in low risk, proven, safe, and cheap technologies. Developing countries account for the bulk of investment in electricity infrastructure: about $450B/y (200 T&D + 150 G + 100 A)of the $700B/y. (T&D is transmission and Distribution, G is conventional Generation and A is Alternative generation) All of the OECD invests about $250B/y (100T&D +50G + 100A). In the OECD, wind and solar investment exceeds other generation by a significant margin, but in the non OECD the ratio is reversed. We are at point where PV is still too expensive to compete without subsidies. So what do Europe and America do? Introduce tariffs to protect domestic producers from Chinese imports. This protection supports already inefficient subsidized industries. What is the incentive to reduce costs through innovation when profits are guaranteed and competition is blocked? PV at current price levels will not become a significant enough producer of energy to have any affect on reducing CO2 emissions. Perhaps rising PV prices will break the cycle of over optimism about PV and get some focus on investments that might lead to competitive, clean, sustainable sources of electricity. Investors in Solar projects in the US and Europe think it burnishes their image as responsible planet aware companies when all they are really doing is partaking in corporate welfare on a grand scale. Public funds are subsidizing half the costs of private PV investment and guaranteeing large profits. Their actions prop up inefficient PV industries who rely on subsidies and now protective tariffs. There is little incentive to lower cost to where the PV business can grow without subsidies and perhaps help reducing CO2 emissions. Solar investors are reinforcing the equivalent of fiddling while Rome burns.

There has been a series of recent articles that paint a picture of the improving state of the PV business. This article highlights that China is starting to deal with the zombie 2nd tier companies. The first tier like Jinko, Trina, Canadian, Sun Edison are pretty strong. This Jinko report shows them profitable with panel ASPs of $0.63/W in China. This matches well with $0.75/W in the US and Europe. China is lower cost because it has cheaper financing and cheaper labor. Also there is starting to be life in the Polysilicon market as polysilcon price has rebounded from $15/kg to $20/kg, with several new factories being announced by REC in China and GTAT in Malaysia. China is the key. As European demand collapsed last year, China's new subsidies for local deployment provided the foundation for their PV panel makers and confidence for future stability. However if prices stay stable at current levels, more subsidy will be needed to grow the market. Projects in the US are profitable with current subsidies and apparently there is enough investor confidence in solar to support projects with IRRs below 10%. Projects in Texas have been bid at PPAs of $0.05/kWh based on low financing costs and current subsidies. Chinese panel makers are becoming project developers as a means to ensure a market for their panels, following the example of US panel manufacturers First Solar and Sunpower that have successfully used this strategy to survive with uncompetitive panels. Overall PV growth projections seem to hinge on new markets in the developing world. Panel prices should stabilize at current levels of around $0.75/W, or even rise over the next few years as the industry returns to profitability. This is all good news, but does not paint a picture where the PV market is likely to grow to the level needed to make a significant impact on CO2 emissions any time soon.

Alternative energy exists solely because of a political will to make it so. It has been uneconomic from its modern inception in the 1970's, driven by the first oil crises. As a result, market driven economic viability has never been a central part of the alternative energy mindset. At its core it has been driven by two perceptions. The first was simply the need for a clean fossil fuel replacement largely regardless of cost. The second was that given time, costs would reduce to make them more acceptable. The political will influenced government to provide subsidies to nurture the business. These subsidies now exceed $100B/y of investment worldwide and prop up a total investment of about $250B/y. However a business that depends so heavily on government support is subject to all the problems of such reliance. Firstly government support is volatile, driven by who wins elections. Secondly, subsidized industries are notoriously inefficient. Any long term subsidy regime encourages business that live off the subsidies with little or no incentive to improve. The perception that costs would reduce has been borne out by time, but the path has been a rocky one. The recent history of PV shows the erratic nature of this progress. On a day to day basis no one sees the big picture. When PV prices were stable for a decade, the perception was of stagnation which led to betting on thin film PV. When prices were falling the perception was they would continue to fall, regardless of fundamentals. Also, market size of a heavily subsidized industry is not perceived as inextricably tied to the size of subsidy. If government continues to support the PV business, costs will decline to a point where PV is competitive for some fraction of energy for sunny locations, but to be a complete solution other technologies like long distance transmission and storage have to become economically viable as well. The current rate of improvement put that point out beyond 2050. This is the status quo. Governments willing to provide limited subsidy, a business happy to live of this subsidy with its current size and rate of growth and an alternative energy political consensus that thinks this is actually working. This status quo is not reducing CO2 emissions and will not reduce CO2 emissions out to 2050. Realists point out that change of the degree necessary to reduce CO2 takes many decades and huge political will. While alternative energy imposes large new costs, the current small political will for change is directly measured by the small amount we are collectively willing to pay for subsidies. The only way to increase the political will is to reduce the cost at a faster rate or better yet turn things around and make clean energy an economic benefit. This perception is sadly lacking. The optimists place their hope in technological breakthroughs, and so we get daily updates on basic research, most of which we know will go nowhere, but create the illusion of progress. The sad reality is that basic research takes decades to make it from the lab to the market and decades more to achieve large scale. To scale quickly a technology needs both a long gestation to viability and to be mass producible. PV has recently demonstrated that it is at this point. The rapid scalability has surprised governments that provided subsidies assuming a slower ability to scale. Germany spent over $150B in two years for about 15GW before they adjusted. China just ramped to over 12GW in one year from a standing start for a lot less. So PV technology is at a point where we can make and deploy as much as we can afford. The problem is the high cost of the resulting electricity, especially if you count the costs of intermittency and storage, is just too much money for economies to sustain. StratoSolar is only PV in a new location. It reduces the cost of resulting PV electricity to market competitive levels and increases the reliability of the supply. There is no new technology or resource that limits its ability to scale. If it is proven viable, the major thing that needs to scale is PV manufacturing, the thing that has already demonstrated scalability. This is a lot like computers in the late 1980s. A large CMOS semiconductor manufacturing business had matured and companies like Sun Microsystems that built computers based on this technology rapidly scaled to volume in the millions. This pattern repeated itself for PCs in the 10s to 100s of millions and recently for mobile phones in the billions, as the cost of computers reduced with volume over time. The common elements are ability to scale supply and an affordable product with sufficient demand to match the supply.

From an investment perspective the risk is like betting on a Sun Microsystems. They had engineering and market risk, but they were fundamentally enabled by available semiconductor technology. They were small investments in small teams that integrated existing technologies to build new products for very large new businesses. The market demand they produced could be met by the scalable semiconductor supply. Similarly, StratoSolar can create a demand that can be met by a scalable PV semiconductor supply. It’s continuing the triumph of the semiconductor age.

This Bloomberg graph shows world investment in clean energy declining over recent years. These declines are due to reducing government subsidies in turn reducing investment. This illustrates that government subsidies drive the market, a point that is rarely discussed, but is extremely important if you want to predict future market trends, as Bloomberg tries to do. If you read the analysis and projections, the fact that they depend almost 100% on predicting subsidies is never really stated. That’s because government actions are fickle and hard to impossible predict for timescales of years. A bigger issue is that market size is determined by the amount of subsidy. At least one half of the clean energy investment shown is from subsidies. That is a minimum of $125B in 2013. Given that to make a significant impact on energy, we need to provide ten to one hundred times current yearly wind and solar alternative energy capacity additions, the implication is very large government subsidies of $1.25T/y to $12.5T/y. However, overall world subsidies seem set to decline further in 2014 and beyond, not grow. Europe has scaled back its clean energy agenda and the US with cheap gas is likely to reduce subsidies even more. Growth in China and India is slowing. Wind and solar power generation costs may reduce, but transmission, storage and other infrastructure costs will easily make up for this. None of this bodes well for reducing CO2 for the foreseeable future. The only rational strategy is to get an energy source that does not need subsidies to be a profitable investment. Wind and Solar cannot do this. As the numbers show, wind and solar are very large business and can survive and profit within the reduced subsidy domain. They can live happily and profitably off of current subsidies while blocking any potential competitors from any serious attention. While clean energy advocates continue to believe that wind and solar are the only answer, and consider any position that questions this as heresy, no progress can be made.By Edmund Kelly

It's a while since I discussed the topic of subsidies. It's a difficult topic to understand, and usually provokes defensive reactions from solar energy supporters. This recent interview with Shyam Mehta, a GTM PV researcher provides good current information and perspective on the PV business.

As can be seen from the chart, there were dramatic changes in the composition of PV demand from 2012 to 2013 but no overall growth in volume or revenue. Basically the PV demand went to markets where there were new or growing subsidies and left markets where subsidies declined. Overall, China probably adjusted its subsidies upward mostly to ensure their PV industry survived the drop in European demand driven by the drop in European subsidies. This is not a well behaved or predictable market. The predictions are totally dependant on predicting subsidies. The GTM forecast is predicting that Europe will regain an appetite for increased subsidies in 2015 and beyond. Its hard to know what the basis for this is. The predicted growth in the US is based on the subsidies that are in place remaining until they diminish in 2016, when US demand is predicted to drop about 50%. The biggest unknown is Asia. Japan's commitment to expanding PV seems pretty solid at least for a few years. China's demand is hard to predict. If it mostly depends on propping up the local PV business they don't have much need to increase demand substantially going forward. Overall it seems a bit optimistic to be predicting an average 20% PV market growth over each of the next two years. Long term, subsidies would be required to grow substantially to maintain a 20% growth rate, which could see prices halve by about 2025, and the cost of subsidies leveling off. A rough estimate of the PV market in 2013 is 30GW, worth about $90B of which $50B is subsidies. If PV prices have stabilized, growth of 20%/y implies growth in subsidies to around $100B in 2017. For the US the 2013 PV numbers are about 4GW installed, worth about $12B, of which about $7B is subsidies. The projected growth implies about $14B in PV subsidies by 2016. That's about the entire alternative energy subsidies in 2013, so it will be noticed. What is the appetite for subsidies? The US spent about $150B from 2008 to 2013, or $30B/y. A lot of that was ARRA one time expenditures. 2014 subsidies are projected to total about $12B. Solar is taking more of the pie. The current US congress would not be predicted to increase alternative energy subsidies, and could easily cut them. This is all rather long winded, but the bottom line is the PV market size is completely defined by subsidies and projecting PV growth means realistically projecting increased subsidies. Given the pain level associated with todayâs subsidy levels, (witness Germanys's pullback) its difficult to see significant increases in world total subsidies to the level necessary to sustain substantial PV growth.

Analysis of the PV market in 2012 have continued to roll in. They vary considerably in their estimates of PV capacity installed, several estimating capacity installed exceeded 30GWp. A recent report from NPD Solarbuzz was less optimistic.

According to the market research firm, PV demand in 2012 reached 29GW, up only 5% from 27.7 GW in 2011. Notably, the growth figure is the lowest and the first time in a decade that year-over-year market growth was below 10%..âDuring most of 2012, and also at the start of 2013, many in the PV industry were hoping that final PV demand figures for 2012 would exceed the 30GW level,â explained Michael Barker, Senior Analyst at NPD Solarbuzz..âEstimates during 2012 often exceeded 35GW as PV companies looked for positive signs that the supply/demand imbalance was being corrected and profit levels would be restored quickly. Ultimately, PV demand during 2012 fell well short of the 30GW mark.â

As usual, the industry and analyst projections going forward are for things to improve dramatically. A more sober analysis would say that the market will continue its painful restructuring with slow to modest growth. The analyses tend to focus on GW installed but a look at the dollar numbers is more revealing of the state of the industry and its likely future.

This graph shows a simple analysis of relevant dollar numbers rather than GW installed numbers for 2010, 2011,2012 and an estimate for 2013 based on a forecast of an increase of 20% in GW installed, which may be optimistic. The Total line shows the total world dollars spent on PV systems, which includes PV panels and Bulk of Systems (BOS). This line has been relatively constant at between $50B and $60B. Over this timeframe the combined reduction in panel and BOS costs has offset the decline in subsidy. The panel line shows that revenue to PV panel makers has been declining significantly. The increase in GW has not offset the fall in PV panel prices, and the revenue decline will continue in 2013. As is known the PV panel business has a capacity to produce about 60GW/year, but demand is about 30GW/year. This has led to severe industry restructuring and low panel prices that in many cases are below the cost of production. There is no new investment in capacity, so the current panel prices are unlikely to fall significantly if most manufacturers are already losing money. The subsidy line shows an estimate of the amount of total world subsidy. This, as is well known has been declining, but the decline has been dramatic. Germany alone pumped in over $100B over 2009-2011, but is now well below $10B/year. China has stepped in energetically, and there is support in Japan and the US, but it still only adds up to half of what Europe used to support, and the overall subsidy amount continues to decline. The PV business is still driven by subsidies. They have declined from about 60% to about 40% of the business, but are still necessary, as current PV systems do not make electricity at competitive costs despite the dramatic PV panel price decline. The overall net effect of panel price declines and subsidy declines has been a market with fairly constant overall revenue. If worldwide subsidies increased that would drive growth which would use up the excess panel manufacturing capacity which would lead to profit and investment in new more efficient capacity and panel price declines that would reduce the need for subsidy. If subsidies continue to decrease, there is little room for PV-panel prices to decline further, and so the overall business will shrink. None of this is coordinated at a world level, so it could go either way. The prospects for increased subsidies overall worldwide seems low, given the current economic focus on austerity in Europe and the US. This has been a long article to get to the simple conclusion that the PV business is unlikely to grow dramatically in the near future and current PV panel prices are likely to prevail for at least several years. Also, optimistic projections for PV panel price reductions based on projecting the recent dramatic drop forward are not realistic, and estimates based on the historical long term trend are likely to prove more accurate. PV at around 30GW/year installation is a tiny fraction of world electricity generation (5000TW), never mind world total energy. The only way to get a dramatic growth in PV is to either get PV to produce electricity at a cost that generates sufficient profit to attract private investment, or massively increase world subsidies. StratoSolar offers the profitable investment path. Our current design if deployed today with current PV cells would generate electricity for $0.06/kWh with very conservative platform cost estimating. This is profitable without subsidy in almost all markets. By Edmund Kelly

I realized that the last two posts centering on the Bill Gates TED2010 talk and the “Beyond boom and bust” paper from The Brookings Institution et al. have the same major theme. They both agree that the current energy subsidy policy has failed and needs to change to a focus on R&D of system level solutions rather than on deployment of technologies that are inadequate.

The current science community and green advocates have not yet gotten to this point of understanding and are still pushing wind and solar as viable solutions. They believe we just have to re engineer the grid, invent cost effective storage and be willing to pay a lot more for energy. This is political suicide as the costs and limits become apparent.

Bill Gates vision is more complete in that it recognizes the need to attempt many unorthodox “miracle” solutions in order to find one that succeeds. Intuitively his investment and promotion of Terrapower also show that investment needs to target companies that are attempting a complete solution, not science, basic technologies or government R&D.

This New York Times article outlines the decline and credits the Brookings Institution, The World resources foundation, and The Breakthrough Institute. They jointly authored the following report “Beyond Boom and Bust” that details the decline and policy changes that they argue would make for a more sustainable subsidy regime. Unfortunately the current political situation does not bode well for reform, particularly if it costs money.

The current subsidy regime is boom and bust and not focused on technology improvement. It is classic government subsidies that encourage the status quo and create a class of companies that live on the subsidies without incentive to improve and who lobby to maintain the subsidies regardless of the benefit or lack thereof. It also funnels money to favored constituencies like government contractors and peer reviewed scientists.

The main focus should be on technologies that have a realistic chance of economic viability with an honest accounting of costs associated with intermittency and geographic isolation. Too much of alternative energy is over optimism and pass the buck accounting.